Skittish Latin Americans may retreat from buying stocks

MEXICO CITY -- Matias Zvetelman of Argentina started dabbling in the stock market three years ago, buying a few blue chips through an online broker whenever he had some extra money.

It was unfamiliar territory for him. In Latin America, stock markets are seen as a club for the rich, and most countries are just beginning to persuade middle-class investors to get in.

Those who did, such as Zvetelman, saw their modest holdings soar in value — until they all came crashing down this month. "It scared me," Zvetelman said, speaking by telephone from Buenos Aires. "I managed to get my money out before the worst of it hit. But with what I'm seeing now, I'm not going back in."

Across Latin America, economists and stockbrokers are afraid the economic chaos of recent weeks will thwart efforts to lure regular people to capital markets, an important step for countries trying to fire up their economies.

The drive for new investors has been intense: "The Stock Market Can Be Yours," says a 10-story-high sign on the side of the Mexican Stock Exchange. "Start earning!" says a TV ad for an investing contest sponsored by the Bank of Chile. A pink banner on InvertirOnline.com, an online brokerage in Argentina, courts female investors: "We know what they want," it says.

What investors want right now is safety, said Juan Carlos Gozzi, an economist and expert on Latin American stock markets at Brown University.

"For sure, this is going to be a setback for investor participation in these markets," Gozzi said.

Since Sept. 19, most Latin American stock indexes have suffered double-digit drops, including 46% in Argentina and 34% in Mexico.

And while smaller investors are not yet selling in droves, they're also not flocking to open accounts, said Carlos Ponce, director of analysis for Mexico's Ixe Financial Group, which owns a brokerage house.

"We have been working for several years to try to change the erroneous image that people have of stock investing," he said. "Now, with this crisis, we're going to have to go back … and try to convince people all over again."

Here's how it works

Educating the public about the markets has become a prime goal for many brokerage houses.

Ads for Actinver show a housewife talking excitedly about the company's mutual funds. "Now is the time to invest!" urges the website of the Monex Financial Group. At colleges and workplaces, brokers from Ixe Financial Group hold seminars with titles such as "Investing in the Mexican Stock Market is Not What You Think."

Latin America has lagged far behind in cultivating a broad investor class, the World Bank said in a report last year.

The average number of companies listed on Latin American stock exchanges actually shrank from 232 in 1990 to 174 in 2004. In East Asian countries, the average number nearly tripled, from 275 to 764.

The bond market is puny, too. Bonds issued by private companies account for 10% of countries' gross domestic product in Latin America, compared with 47% in more developed countries, the World Bank says.

With so few investments available for purchase at home, wealthy Latin Americans prefer to invest on the U.S. stock exchanges, instead, said Luis Silva-Santisteban, a Peruvian who runs Labolsalatina.com, an Internet forum for investors.

Going the safe route

Middle-class investors, meanwhile, have long been suspicious of financial institutions because of Latin America's history of economic crashes, said Pablo Riveroll, director of research for Actinver.

"People put their money in real estate or in green dollars under the mattress, or in travelers' checks," Riveroll said. "They didn't feel very confident investing in other things."

To win new customers, most brokerage houses in Mexico have lowered the minimum for mutual fund accounts to 10,000 pesos, or about $720, in recent years. Companies such as AcciTrade, a brokerage branch of U.S.-based Citigroup, have launched online simulators, where Mexican investors can experiment before risking their money. Actinver has opened offices in shopping malls to attract walk-in clients.

Other companies are pinning their hopes on retirement funds. Millions of Chileans, Brazilians and Mexicans are now required to put their savings into government-mandated mutual funds, creating a training ground for new investors.

"As people begin to experiment with those (retirement funds) and work with them, they'll get more sophisticated, and it will become more participatory," said Teofilo Ozuna, business dean at the University of Texas-Pan American.

For now, however, Latin Americans remain skittish about the markets. Getting new customers will be harder than ever, Riveroll said.

"People won't come back until there's clear evidence that the market has already risen by 50% or 100%," Riveroll said.

Hawley is Latin America correspondent for USA TODAY and The Arizona Republic.